Here comes a ‘flurry’ of retail bankruptcies, former retail CEO warns

Retailers on life support may go the way of the dinosaur in early 2023 should the economic slowdown cause a lackluster holiday shopping season.

“I think we will see a flurry of bankruptcies likely in the first quarter of 2023 if this holiday season is anything less than completely robust,” Mark Cohen, former longtime CEO of Sear Canada and current Columbia University professor of retail studies, warned on Yahoo Finance Live (video above). “I don’t think it will be, by the way.”

Retail bankruptcies — which picked up in droves at the start of the COVID-19 pandemic — have fallen by the wayside as consumers returned to stores to stock up on apparel and other items coming out of the pandemic.

A dismantled sign sits leaning outside a Sears department store one day after it closed as part of multiple store closures by Sears Holdings Corp in the United States in Nanuet, New York, US, January 7, 2019. REUTERS/Mike Segar TPX IMAGES OF THE DAY

Only three retailers filed for bankruptcy in the second half of 2021 versus 20 in the same period in 2020, according to a report from BDO. There were no new retail bankruptcies filed from mid-September 2021 through mid-February 2022, the report found.

“There is no question as business becomes tougher to manage, weak players fall by the wayside,” Cohen said. “They are particularly vulnerable to inflationary pricing and inflationary costs.”

The bad news in retail continues to mount as the economy slows, calling into question how even the strongest in the sector would navigate a potential recession in 2023.

In early June, Target kicked off concerns about the retail sector’s health with a shocking decision to liquidate massive amounts of slow-moving inventory and take a more cautious view on near-term profits.

Since then, discretionary retailers such as RH, Bed Bath & Beyond, and Kohl’s have issued financial warnings for their second-quarter results.

Cohen said he is particularly concerned about the outlook for Bed Bath & Beyond, which he said is “in a world of hurt.”

Other retailers are also indicating trouble. Nike took a more measured approach to its full-year financial outlook when it reported quarterly earnings. Bath & Body Works issued a second-quarter earnings warning shoppers cut back on discretionary scented candles and hand sanitizer. And Gap just fired its CEO after another brutal quarter.

“I have never — maybe I don’t remember — seen as much discounting with as much merchandise with high percents off,” retail legend and former CEO of Gap and J. Crew Mickey Drexler told Yahoo Finance Live last week.

Drexler, who now helms high-end apparel player Alex Mill, added: “Our business is quite small but growing rapidly. So we are doing pretty well. But I think we are all being affected by the tough economy, inflation, and so on and so forth.”

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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